New York Attorney General Settles With Debt-Collection Firms Over Payday Loans

New York Attorney General Eric Schneiderman is cracking down on firms that allegedly collected on payday loans that violate the state’s ban against high interest rates.

Mr. Schneiderman’s office said Monday it reached settlements with five debt-collection firms, which are paying a combined $279,605 in restitution and $29,605 in penalties.

The agreements are the latest move by prosecutors and regulators to clamp down on short-term loans that often carry interest rates that exceed state usury laws.

In New York, most lenders are prohibited from charging more than 16% on loans.

The firms settling with Mr. Schneiderman are V&R Recovery Inc., which does business as Alexander & Stefano; RJA Capital Inc.; Westwood Asset Management LLC; Erie Mitigation Group LLC; and Northern Resolution Group LLC.

Payday loans are small-dollar loans that typically must be repaid within two weeks to a month. The average size of a payday loan is $375, according to public-policy nonprofit Pew Charitable Trusts, which estimates 12 million Americans used a payday loan in 2010.

They can carry annual interest rates that exceed 600%.

Mr. Schneiderman in August sued online lender Western Sky Financial LLC, arguing it violated state law by charging rates as high as 355% on short-term loans to New York residents.

Western Sky is seeking to have the suit dismissed, arguing it is not subject to New York state law because its business is operated on an American Indian reservation in South Dakota. Lenders with ties to Indian tribes have argued they enjoy the same sovereign rights as those enjoyed by tribal governments, making them immune from state regulatory actions.

Two Indian tribes are suing New York Department of Financial Services Superintendent Benjamin Lawsky, arguing his efforts to clamp down on their lending activities violates their sovereign rights.

Mr. Lawsky in August sent cease and desist letters to 35 online lenders, including Western Sky, alleging their loans violate the state’s interest rate caps. He also urged banks that process payments for such companies to sever ties with such lenders.

Western Sky earlier this month announced it had stopped making new loans to customers, citing recent regulatory actions.